Fed's Tom Barkin Talks Employment, Inflation

Summary

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Podcast Episode Summary

Podcast: Bloomberg Talks
Episode: Fed's Tom Barkin Talks Employment, Inflation
Date: September 26, 2025
Host: Bloomberg
Guest: Tom Barkin (President, Federal Reserve Bank of Richmond)

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Overview

In this episode, Richmond Fed President Tom Barkin joins Bloomberg to discuss the current state and outlook of employment, inflation, and U.S. monetary policy. Barkin shares insights on the Fed’s decision-making process amidst uncertainty around inflation, the labor market, tariffs, and the implications of recent policy debates. Throughout, he emphasizes adaptability and caution in a rapidly changing economic landscape.

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Key Discussion Points and Insights

1. Market Expectations vs. Fed Decision-Making

• Host’s Question: Markets expect rate cuts soon, but recent data suggest both inflation and GDP are running hot, with strong jobless claims. Should we be less confident about imminent cuts?
  Tom Barkin:

  "I don't think you can mark to market the next meeting every week, even though that's what the markets do… Let's see what happens on the unemployment side. We'll get there when we get there."
  (00:44–01:23)

2. Inflation Outlook and Tariffs' Impact

• The host notes new tariffs and skepticism about forecasting inflation.
  Tom Barkin:
  • There are notable cost increases (tariffs, health insurance, etc.) that suppliers wish to pass to consumers, but consumers are increasingly resistant to higher prices.
  • "We're seeing a lot of trading down… branded to private label… It wouldn't surprise me at all if people who are forced to accept certain price increases therefore don't buy something else… That's your classic relative price trade off. That may mean you won’t see as much broad based inflationary impact…"
    (01:43–02:29)

3. Balancing Inflation and Unemployment Risks

• With inflation and unemployment both moving in the "wrong direction," Barkin reflects on the policy conundrum:
  • The inflation downside is limited by consumer pushback and rising productivity.
  • Labor supply is shrinking as demand falls, mostly due to demographics (retirements, immigration policy adjustments), likely containing rises in unemployment rates.

  "You’ve got less labor demand, low hiring, low firing environment, but you've also got less labor supply. And that probably means that the unemployment rate increases are going to be relatively limited."
  (02:42–03:55)

4. Business and Market Response to Tariffs and Uncertainty

• Businesses in Barkin’s district are acting despite uncertainty:

  "I've been describing it as a fog that's created uncertainty. The fog has started to lift… A lot of businesses I talk to say, 'I've just got to do something. I can't be on the sidelines forever.' So I am seeing people more in the game."
  (04:25–05:13)

• However, some sectors still face greater volatility due to fresh tariffs.

5. Rate Cuts and Market Speculation

• Markets are rising on hopes of lower rates in a year. Barkin refrains from tying the Fed’s actions to market expectations:

  "We are very much focused on trying to land the plane here and balancing inflation, unemployment… we're just going to have to adjust our stance as we learn more."
  (05:24–05:43)

6. The Fed’s 'Dot Plot' and Policy Direction

• Barkin appreciates the Fed's dot forecast process as a forcing function for integrating policy thinking, but resists public predictions:

  "I don't have it as a forecast prediction. It's not something I like to talk about publicly because it adjusts... every meeting for me is one where I want to stop and look at the balance…"
  (05:50–06:21)

7. Debate Over the Neutral Rate

• Recent debate centers on where the “neutral rate” is (the interest rate consistent with full employment and stable inflation).
  • Barkin references the Richmond Fed's Lubik-Mathes model, which currently signals a relatively high neutral rate, as the U.S. economy remains robust despite higher rates.

  "In the real economy over the last couple years… interest rates go up and the economy stay relatively healthy. And so that model… has a relatively high neutral rate because it takes a lot of signal from the current environment."
  (06:34–07:15)

• He stresses uncertainty (“confidence interval of about 200 basis points”) and the importance of real-time economic signals over model forecasts.

8. Operational Rate Policy & Fed Structure

• Barkin praises Laurie Logan’s conference presentation on potential changes to the Fed’s operational rate, but withholds judgment pending further study.
  • On potential Supreme Court decisions affecting Fed governance, Barkin adopts a neutral stance:

  "What I do every day is show up and try to argue for the best monetary policy we can…"
  (09:13–09:30)

9. Best Policy Approach: Adaptability Over Prescription

• On whether the path forward is more rate cuts or not, Barkin is explicit about remaining flexible:

  "I think you have to be very adaptive to what's playing out here… I feel like very adaptive is the way to think about it… we're going to see and learn a lot as we go here."
  (09:40–10:30)

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Notable Quotes & Memorable Moments

• On Market Expectations:

  "I don't think you can mark to market the next meeting every week, even though that's what the markets do."
  (01:08 – Tom Barkin)

• On Consumer Behavior and Inflation:

  "We're seeing a lot of trading down… Branded to private label kind of choices… That's your classic relative price trade off."
  (01:43 – Tom Barkin)

• On Labor Markets:

  "You're seeing million three more people over 65 out of the workforce every year."
  (02:42 – Tom Barkin)

• On the Fog of Uncertainty for Businesses:

  "I've been describing it as a fog that's created uncertainty. And I definitely think… the fog has started to lift."
  (04:25 – Tom Barkin)

• On the Usefulness of Neutral Rate Models:

  "…not that helpful for making operational decisions on monetary policy... what is more helpful… is how are you seeing the economy react real time to the level of rates..."
  (07:40–08:41 – Tom Barkin)

• On the Right Stance for Today:

  "I think you have to be very adaptive to what's playing out here… we're going to see and learn a lot as we go here."
  (09:40–10:30 – Tom Barkin)

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Timestamps for Major Segments

• [00:44] – Should markets be confident in October/December rate cuts?
• [01:43] – Impact of tariffs and inflation forecasting challenges
• [02:42] – Weighing inflation downside vs. labor market dynamics
• [04:25] – Business sentiment and adaptation to uncertainty
• [05:24] – Market optimism vs. Federal Reserve’s actual stance
• [05:50] – The Fed's 'dot plot' and process for setting policy
• [06:34] – Neutral rate debates and the Richmond Fed’s model
• [08:49] – Reaction to proposals on Fed's operational rate (Laurie Logan)
• [09:13] – Fed governance and political disruptions
• [09:40] – Barkin’s ultimate advice: flexibility over prescriptiveness

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Summary

Barkin’s appearance offers a candid look at the Federal Reserve’s delicate balancing act in 2025. He pushes back against the market’s constant focus on immediate moves, emphasizing uncertainty, the limits of forecasts, and the need to “be adaptive” as data and global factors shift. The conversation explores both the practical and philosophical aspects of monetary policy—how data, models, and human judgment come together amid an environment of strong but cooling labor markets, persistent (if contained) inflation risks, shifting global trade conditions, and institutional debates inside and outside of the Fed.

Transcript

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[Tom Barkin]

Bloomberg Audio Studios Podcasts Radio.

[Bloomberg Host]

News Joining us this morning, Richmond Fed President Tom Barkin here on Bloomberg Television and radio worldwide. And on radio they can't see it, but on television people could see you have a bit of a bandage on your head. You just had one of those older people's kind of operations.

[Tom Barkin]

Yeah. There's no truth that it was what happened in the last meeting.

[Bloomberg Host]

All right. Speaking of the last meeting, we came out of that believing that, or at least Wall street, that you're going to cut rates again in October and maybe in December. But since then we've gotten some numbers that show GDP is hotter, inflation is still running hot, and the jobless claims numbers suggests companies aren't laying anybody off. So should we have less confidence in the path going forward?

[Tom Barkin]

Well, I don't think you can mark to market the next meeting every week, even though that's what the markets do. I mean, let's, let's see what happens on the unemployment side. We'll get some important data in a couple of minutes here on the inflation side and I think we'll get there when we get there.

[Bloomberg Host]

Well, the majority seem to believe, at least according to what the chairman tells us, that inflation is going to be a one time rise in the price level. Then overnight we got a bunch of new tariffs, as you just saw on a lot of different things from the president. How much confidence do you have in any kind of inflation forecast at this point?

[Tom Barkin]

Not much. I mean, what I definitely see happening is there are cost increases that suppliers want to pass on. There's no question about that. And tariffs are a big part of it. But you could put health insurance and other places, other costs in there too, but those costs are going to attempt to get passed on to a consumer who's frankly exhausted of price increases. And so, you know, we're seeing a lot of trading down, you know, branded to private label kind of choices. But we're also seeing people trade off. And it wouldn't surprise me at all if people who are forced to accept certain price increases therefore don't buy something else on the other side. And that's your classic relative price trade off. And that may mean that you won't see as much broad based inflationary impact as you'd see, you know, price increases on particular items. We'll see.

[Bloomberg Host]

And yet you get PC in an hour, and basically you've already calculated the numbers. Inflation's not moving in the right direction. So, so can you still justify, or how long can you justify cutting rates in that environment?

[Tom Barkin]

Chair Powell well, we have inflation moving in the wrong direction, unfortunately. We also have unemployment moving in the wrong direction. And that was the backdrop of the last meeting. You have to ask yourself, you know, how are the risks still the same as you saw them two, three, four months earlier when you had unemployment in the right direction and inflation in the wrong direction? You know, my overall thesis, though, is that while it's not, you know, ticking in the right place, the downside's relatively limited. I see the inflation downside is limited by this customer pushback that I just talked about. Also productivity, which I think is we're seeing that at real scale. And so that means there's less pressure to pass costs on. And then on the unemployment side, obviously labor supply is dropping at the same time as labor demand, and that's keeping the unemployment rate relatively balanced. And that's the combination of immigration and revocation of temporary status. Also, you know, our generation, you know, Mike, which is leaving the workforce, I mean, you're seeing million three more people over 65 out of the workforce every year. And so you've got less labor demand, low hiring, low firing environment, but you've also got less labor supply. And that probably means that the unemployment rate increases are going to be relatively limited.

[Bloomberg Host]

Well, at least you and I are still employed as of today.

[Tom Barkin]

Well, we'll see how this interview goes.

[Bloomberg Host]

You suggested that companies in your district are beginning to feel a little bit better, or at least some of the uncertainty has come off of their planning and their thinking. Are these kind of big new tariffs that we got today just going to change that mind? Has this the idea that ongoing tariffs and ongoing disruption are going to be part of this administration and economy? Is that in their planning?

[Tom Barkin]

Well, I've been describing it as a fog that's created uncertainty. And I definitely think in the context of the last couple of months, the fog has started to lift. Businesses don't know exactly what the tariff will be on their sector necessarily, but they kind of have a sense of the range. People aren't really following the news every day the same way they were back in April. And a lot of businesses I talked to say, look, I've just got to do something. You know, I've got to, I've got to take action. I can't be on the sidelines forever. So I am seeing people More in the game. Now, if you're in a particular sector where you see a new announcement, of course that's going to set you back. And so, you know, what I say about businesses in general is not true of businesses in every sector. And so there are sectors with a lot more clarity and sectors with a lot less clarity. And that's, I think, just going to be part of the game here.

[Bloomberg Host]

This morning we had an investor on who basically said markets are rising because of the idea that a year from now rates will be substantially lower. Is that the right way to look at it? The wrong way to look at it?

[Tom Barkin]

Oh, I wouldn't know how to think about, you know, how markets ought to rise or not rise. I mean, we are very much focused on trying to land the plane here and balancing inflation, unemployment. As I said, I think both of them have ticked in the wrong direction. But on the other hand, the downside is limited, and we're just going to have to adjust our stance as we learn more.

[Bloomberg Host]

Well, where's your dot? What are you thinking in terms of the next couple of meetings and then for 2026?

[Tom Barkin]

Well, I really like the dot process for me because it's a. It forces real integration of your thinking in terms of where you think the economy is going, where you think policies going. But I don't have it as a forecast prediction. It's not something I like to talk about publicly because it adjusts. You know, we do mark that DOT to market as things go. So, you know, every meeting for me is one where I want to stop and look at the balance between how we're doing on the inflation side of the unemployment side and make the right decision.

[Bloomberg Host]

Well, the story around the Fed this week has been, shall we say, the debate over where the neutral rate is. Where do you think it is and how fast it would you want to get there?

[Tom Barkin]

Well, you know, I've seen a lot of the stuff that's been in the press and we're studying that. And, you know, I always try to understand all arguments and figure out how to integrate them into my thinking. I'd point you to the Richmond Fed neutral rate, the Lubricant Mathis model. It takes a lot of signal from what you see in the real economy. And in the real economy over the last couple years, what you've seen is interest rate. I mean, interest rates go up and the economy stay relatively healthy. And so that model doesn't take a lot of. Has a relatively high neutral rate because it takes a lot of signal from the current environment. Now, things can change, but that's where the Richmond Fed model is right now. And I'd point you to that.

[Bloomberg Host]

What, what number do they have? Where are you?

[Tom Barkin]

It moves around based on what's happening in the economy.

[Bloomberg Host]

Well, that gets to the next question. Is Chairman Powell saying that you really don't want to target the neutral rate because it moves? Also saying that for any voter to really move things around, you have to be incredibly persuasive. Do you find Stephen Myron's arguments persuasive?

[Tom Barkin]

Well, I'm looking forward to digging into them with my team and I like every voice in the room and every argument in the room. You know, that's what we do as a discipline as we sit down and try to take those arguments apart and figure out which parts of them really resonate with the way we think about things and which parts don't. We're looking forward to doing that on the neutral rate. You know, in general, I just want to agree it's not that useful as a operational tool. There are the models out there, even the one that I talked about have a confidence interval of about 200 basis points. And so you could say it's three, which is around the SEP median. You could say it's three and a half or two and a half. But if you add a 200 basis point range to it, you say that's not that helpful for making operational decisions on monetary policy. What is more helpful, and the reason I, I favor the model we've got in Richmond, is how are you seeing the economy react real time to the level of rates you've got in the market? And if you see it weakening, that's a signal that maybe you've got it too high. If you see it relatively strong, that's a signal the other way.

[Bloomberg Host]

Laurie Logan went to Richmond to announce her idea of changing the operational rate for the Fed. What do you think of that?

[Tom Barkin]

Well, I appreciate Laurie making the trip. We had a balance sheet conference yesterday that was very well attended and I thought lots of thoughtful papers, including hers. And I thought she made an extremely articulate, well reasoned into argument and I'm looking forward to digging into it further.

[Bloomberg Host]

You anticipate the Fed making a change?

[Tom Barkin]

Oh, I don't know.

[Bloomberg Host]

The Supreme Court, if it allows the President to fire Lisa Cook, what does that mean for the Fed?

[Tom Barkin]

Well, the judicial processes and political processes will operate however they operate. What I do every day is show up and try to argue for the best monetary policy we can and make the case, as you said, in a persuasive way to my colleagues and that's what I'm going to continue to do.

[Bloomberg Host]

Well, let's leave it with this. What is the best monetary policy right now? Continued rate cuts or do you not know at this point?

[Tom Barkin]

I think you have to be very adaptive to what's playing out here. The world I've described is one where the labor market is weakening. It's a low hiring environment but the labor supply is also short and you have to be very attentive to that balance because it could get out of balance. Right. Similar on the inflation side, you do have these cost pressures and four and a half years of inflation over target. On the other hand, you're not seeing that show up and spikes in inflation in the real time numbers. We are seeing what seems to be a productivity boom. And so I think you have to be very attentive to how little we know about how each of our mandate variables is going to play out. And so, you know, I feel like very adaptive is the way to think about it as opposed. And that's part of why I'm not being prescriptive into. Well, it's this many cuts over this period of time because I think we're going to see and learn a lot as we go here.

[Bloomberg Host]

Tom Barkin, thank you very much for coming up to Washington and joining us this morning here on Bloomberg.

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